Remarks at the 2021 Australian Energy Week Conference
25 May 2021
ANGUS TAYLOR: When I started as Minister for Energy in 2018 it was clear - I was the Minister for getting prices down, with Australian consumers at the centre of our approach.
Getting prices down and keeping the lights on gives households a greater level of economic security and freedom to spend their hard-earned money the way they see fit.
Getting prices down allows businesses to create new and better paid jobs for Australian workers.
This is what drives our Government.
And it is why our plan is centred on delivering affordable, reliable energy.
The data shows our plan is working.
Wholesale prices have fallen sharply over 19 straight months, since we introduced the Big Stick legislation in September 2019 through to March.
Quarterly wholesale prices are around half of what they were a few years ago and the lowest since 2012.
Household electricity costs are down more than 11 per cent in the last 12 months.
We have achieved this while also bringing down Australia’s electricity sector emissions.
Australia has the highest uptake of rooftop solar in the world – one in four houses.
We have seen record investment in solar and wind – 6.3GW in 2019 and 7GW in 2020. Over $15 billion has been invested in new renewable generation in the last two years alone.
This is excellent news, but there are challenges ahead.
The speed and scale at which variable renewables are coming online is causing disruption on level that we have never seen before.
Intermittent generation is causing increasing volatility in the wholesale electricity market.
This is making the grid more difficult to manage, creating volatile prices, and undermining the retention of less flexible dispatchable capacity.
Our system is already under strain, with out of market costs and market interventions increasing.
We need balance. We need to ensure that renewables are complemented by sufficient reliable generation.
This is not about ideology, just a simple, pragmatic focus on the solutions required to ensure consumers have continued access to affordable and reliable power.
We only have to look at the recent past in South Australia to see the very real impact prolonged blackouts can have.
Likewise, the sharp rise in prices following Hazelwood’s closure in 2017, shows what can happen when we lose balance in the system.
In Victoria, like in South Australia, the consequences were very real – for families, businesses and communities.
It is essential we retain balance.
Coal provides 66 per cent of our electricity supply. Closures without replacement are not just difficult to manage, this is a fundamental challenge to ensuring families and businesses have affordable and reliable supply of electricity to underpin our way of life.
Gas will inevitably provide part of the answer, with prices falling dramatically in the last 18 months, and new generators now typically built to be hydrogen ready.
Pumped hydro with deep storage, transmission between states, and batteries can all play a role.
Ultimately we need balance between these technologies and between intermittency and dispatchability.
However, there is a challenge with investment in new dispatchable capacity that contributes to the energy market – not just system services.
It has been over a decade since a new dispatchable generator was built in NSW, and nine years since a large dispatchable generator was built in Victoria.
The Morrison Government is acting decisively to fill dispatchability gaps in the market where necessary.
Through the 2021-22 Budget, our continued commitment to securing affordable, reliable power for consumers is clear.
Snowy Hydro is building a new 660 MW gas generator at Kurri Kurri in the Hunter Valley to bridge both the price and reliability gaps following the closure of Liddell.
We are supporting AIP’s Port Kembla gas generator to complete early works as it progresses to final investment decision with $30 million in funding.
And we are establishing a $24.9 million program to ensure new gas generators are hydrogen ready. This includes $5 million for Energy Australia’s 316MW Tallawarra B gas power station in NSW.
All of this builds on a range of government actions.
Snowy 2.0 is on track to deliver the largest electricity storage operation in Australia, with costs of storage at a fraction of alternatives. This will allow the increasingly excessive supply of solar to be stored during the day and used when the sun goes down.
And we have implemented initiatives to encourage private sector investment in dispatchable generation - pumped hydro, gas, batteries or just continuing to maintain existing reliable generators - but there is much more to do.
The driving principle is to make fit-for-purpose reforms to market design, rather than ad hoc interventions made necessary by developments in the past.
Our market design must evolve to encourage new investment in the dispatchable capacity that we have long taken for granted.
These in-market investment signals are key to the successful delivery of the Post 2025 market design which encourages more dispatchable supply, greater competition in dispatchability and puts downward pressure on prices.
There are three key outcomes the post 2025 work must deliver.
The first is the delivery of affordable, reliable power, supported by the right mix of technologies.
This requires strong market signals that both encourage investment in new dispatchable generation to replace our aging thermal generator fleet, and incentivise our existing thermal generators to remain in our market for as long as needed.
Two simple changes to the RRO—making it ‘always on’ and linking contracts more directly to physical capacity—could together strengthen the signals needed to deliver both reliability and keep prices low.
As a reformed “Affordability and Reliability Guarantee”, this would shift the contracting requirements from virtual commitments to contracts linked to physical resources.
Complemented by removal of the current three- and one-year triggers for RRO contracting, it would step in to replace the weakened investment signals in the energy only market.
In addition, new markets that value and procure, in an efficient way, the inherent qualities of dispatchable generation – like operating reserves and inertia – are also vital.
The second outcome is value-for-money construction of new transmission – but only where it is needed.
Transmission costs will be baked in to bills for decades, so new investment need to be carefully considered.
This requires clear rules around the development of Renewable Energy Zones to ensure consumers are the beneficiaries, and regulations to cost-effectively deliver necessary priority interconnection projects in a timely way.
The third outcome is to ensure we keep up with significant changes in the market, by integrating unprecedented levels of rooftop solar in a way that keeps our grid secure while maximising the benefits for all consumers.
This will ensure our grid continues to operate in the long-term interests of consumers.
It is important all governments cooperate to deliver the reforms that consumers need.
An uncoordinated approach will lead to uncoordinated investment and higher prices and greater reliability risks.
As I have said, disunity works to the detriment of energy consumers.
That’s why we must work together transparently and cohesively to deliver the right investment signals and outcomes that are in the best interests of consumers.
When the Government talks about affordable, reliable power, it is not a soundbite. It has real meaning.
It is felt by families and workers who have more money in their hip pockets.
It means uninterrupted access to essential services, like hospitals and telecommunications, and it means our businesses and industries are better able to grow and thrive.
Australia’s economic success was made possible through affordable, reliable power.
Thermal generation continues to make this possible. It has allowed us to keep the lights on day after day and deliver low-cost electricity to Australian consumers.
We must continue to have the right mix of resources and technologies to ensure electricity is available when and where it is needed, at affordable, competitive prices.
The Post-2025 project provides a singular opportunity for governments to work cooperatively to meet the needs of Australian energy consumers.